O.C. schools skirt competitive bidding rules

A crew from Williams Scotsman labors on a project at Jack L. Weaver Elementary in Los Alamitos Tuesday. Los Alamitos Unifed is using controversial construction deals to hire favored companies without competive bidding required by state law. JOSHUA SUDOCK, ORANGE COUNTY REGISTER

About the leaseback law

The state legislature enacted what is now known as Education Code 17406 in 1957 to help cash-poor schools build new classrooms.

The law allows schools to lease a site to a contractor for $1 a year. The company builds a new school on the site, financing the construction with its own money. The school then subleases the property back from the company, making regular rental payments over as long as 40 years.

Schools do not use the law for its intended purpose today. Instead, they are applying it as a loophole to escape required competitive bidding rules and hire favored contractors, paying them out of the proceeds of tax-paid school bonds.

- Melody Petersen

In early May 2008, an employee of Los Alamitos Unified tacked up a notice at the public library in downtown Seal Beach.

The school district, it announced, had sued local residents.

The fine print revealed more: the district had hired an out-of-town construction firm to remodel an elementary school and anyone opposed was ordered to respond quickly in court with a lawyer.

School officials opted for this strange legal maneuver so they could hire the company without trying to find other firms that would charge less or do better work – which is required by state law. When no one showed up in court, the school district had the judge sign an order declaring that no one could ever challenge the no-bid deal.

"It was all done secretly," said Stan Howard, a 27-year resident of Los Alamitos and the owner of Howard Contracting, which has done dozens of school construction jobs. "I'm a taxpayer and this isn't right."

The 2008 deal was the first of at least eight projects that Los Alamitos Unified awarded to West Coast Air Conditioning through contracts that sidestepped competitive bidding, which is considered a safeguard against inflated pricing. The total cost of those deals: more than $100 million.

Across the state, roughly 18 percent of all school construction projects in the last five years were arranged using these complex transactions. Known as lease-leaseback contracts, they involve schools leasing a property to a developer and then subleasing it back.

The deals have rewarded a small group of contractors, law firms and architects that have aggressively promoted them to schools at conferences and cocktail parties. But taxpayers will never know just how much their schools could have saved by opening the jobs up to bids by all companies qualified for the work.

Los Alamitos is one of six Orange County school districts that have agreed to one or more of the deals in the last five years, according to the state Office of Public School Construction. Nine of those 16 contracts were signed last year. The other districts are Anaheim City, Cypress, Placentia-Yorba Linda, Saddleback Valley and Savanna.

Soon after being hired in 2008, the San Diego County-based West Coast Air showed its appreciation to Los Alamitos officials. The company donated $25,000 to the political campaign that worked to pass a school bond measure in late 2008. The school then gave the company at least seven more building projects.

West Coast also donated $2,500 toward the cost of a bowling and country club party for principals and staff, district records show. Last year, it and another firm treated at least one board member, Dr. Jeffrey Barke, to a $175 round of golf, with lunch and dinner included.

"It's too big of a coincidence that you make a contribution and then you pick up all this work," said Paul Mahoney, a lawyer who represents Howard in a legal challenge against the district.

In court papers, Howard and Mahoney allege that the deals are unlawful and costing taxpayers hundreds of thousands of dollars.

"The entire procedure is illegal and unconstitutional because it involves an improper expenditure of public funds," they argued in their civil lawsuit in Orange County Superior Court. "It is nothing more than a blatant effort to bypass competitive bidding."

David Dudley, West Coast Air's president, did not return calls for comment. But Los Alamitos Superintendent Sherry Kropp said West Coast's donations had nothing to do with the district's decision to hire it. "We chose who we thought was best for the job," she said.

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